Samsung's culture needs to change if it wants to survive

That may seem obvious (who actually revels in failure?), but most companies don't react to setbacks the way Samsung does.

The best example? That famous story from 1995 where the company's chairman set 150,000 defective phones ablaze in a giant bonfire in front of Samsung's factory in Gumi, South Korea with thousands of employees watching.

The demonstration doubled as a dire warning: Don't let it happen again.

Two decades later, with Samsung reeling from the damage of its defective Galaxy Note 7 smartphones, employees are bracing for another bonfire.

Only this time insiders expect Samsung to burn a lot more than faulty electronic devices.

It's almost certain that the playbook that transformed Samsung into a consumer electronics powerhouse will get substantial revisions.

And as Samsung prepares for its annual executive reorganization — a yearly purging of the top ranks that's coming up in a few weeks — it's likely we'll see a lot of heads roll, especially at the top. This wasn't just any screwup. It was one that erased billions from Samsung's market cap and gave Apple and Google an opportunity to reap the rewards from those fed up with the Samsung brand.

Lockdown

Internally, Samsung is on lockdown. Even people I normally talk to within the company have been unusually tight lipped as the investigation continues into what exactly caused the Galaxy Note 7 to explode. The theory among those I have spoken to seems to be that Samsung is withholding all the information it can until the annual reorganization happens. Then the healing can begin.

To recap: After weeks of reports that the Note 7 devices overheated or exploded, causing dozens of injuries and the evacuation of a Southwest Airlines flight, Samsung made the decision last month to recall the phone and cancel the Note 7 line for good. A separate product recall involving washing machines that have injured consumers when the lids flew off has further tarnished Samsung's reputation.

One person close to Samsung told me the company's electronics group is currently reevaluating everything from marketing to design to engineering to make sure nothing like this ever happens again. That means changes in leadership as well as in culture.

Samsung built its brand by being first to market with the coolest and newest technologies, from smartphones to televisions. The company released 6 smart watches in the year before Apple released the Apple Watch, and Samsung is regularly among the first to showcase slick new breeds of televisions like curved OLED displays.

But that strategy now looks like a liability.

As Bloomberg reported, Samsung's rush to beat Apple's iPhone 7 could've been one of the reasons why the Note 7 turned out to be defective.

Normally, Samsung would've solved the Note 7 problem and moved on by now, this person told me. But in this case, the company is slowing down and evaluating everything in its product development cycle.

Given the urgency under which Samsung has operated for so long, this deliberate pace investigating the matter may well represent the first sign of a major culture shift.

A Samsung Galaxy Note 7 that exploded.
AP

If we don't change, we don't survive

The stakes couldn't be higher. Samsung appears to be aware that it could suffer the same fate as other former industry leaders like Nokia and BlackBerry unless things drastically change. People I've spoken were optimistic that the Note 7 crisis could be the catalyst the company needed to change how things work at the company.

"If we don't change, we don't survive," another person close to Samsung told me. And, for the first time, insiders are getting the sense that things actually are changing.

Part of that change, it seems, is to make sure products are fully baked before releasing them to the public. Moving quickly is admirable, especially in the tech world, but not at the expense of making a product that's safe to use. Samsung learned a hard lesson. Now it's getting ready for a change.

The change won't be easy. The culture of urgency is deeply entrenched in the company and broadly diffused across disparate operations that include everything from the production of semiconductors to batteries.

It's especially important going into 2017. Before the Note 7 turned out to be a dud, Samsung was gearing up for its next major flagship device that should launch early next year. Unfortunately, those plans have been tainted by the Note 7, and Samsung will have to rethink how it pitches the phone to the public. The device is said to be another radical transformation in design, according to early rumors, and I've been told to expect some impressive new products throughout the year. (Sorry, I wish I had more details than that.)

But if Samsung wants those devices to be successful, it'll have to prove that it's learned its lesson and has the processes in place to make sure all future products are safe.

Do you know anything about what's happening at Samsung following the Galaxy Note 7 debacle? Email me at skovach@businessinsider.com. (I'm discreet!)